Reeves revives plan to cut cash ISA despite backlash
Chancellor Rachel Reeves is looking to use the looming Autumn Budget to kickstart plans for a major overhaul of tax-free ISAs, in a bid to get people’s cash savings into domestic stocks.
The Chancellor is understood to be reviving a plan to cut the tax-free limit on cash ISAs, potentially halving it from £20,000 to £10,000 a year to push more savers into stocks.
First reported in the Financial Times, Reeves wants British businesses to help her make the case for the changes, as she seeks to create an investment positive culture in the UK.
One ally of Reeves said: “She wants to see people investing more in British stocks because it’s good for growth and it generates better returns for savers.
“But we can’t win the argument on our own. Lots of businesses support the idea but never say it.”
Pushing to slash the ISA
Reeves’ prior plans to cut the limit were halted during the summer following heavy lobbing by building societies, who warned that they used cash ISAs to fund mortgages and reducing these inflows would potentially make home loans more expensive.
British savers have a £20,000 annual limit on the amount that can be protected from tax in ISAs. The cash ISA is the most popular product, with an estimated £300bn deposited.
However, Treasury officials have held meetings with financial service companies in recent weeks to discuss plans to limit the amount that can be put in cash ISAs.
A person close to the process said the Treasury was considering a £10,000 annual cash ISA limit, higher than the £5,000 previously suggested by industry figures.
Treasury officials are also debating the revival of a previous Conservative plan to create a “Brit ISA”, which would have provided an extra £5,000 tax-free allowance for UK equities but was ultimately killed off by the Labour government on the grounds that it would over complicate the market.
While Reeves’ team confirmed that cutting the limit was being considered ahead of the Budget, they stressed that “a number of options are on the table and no decisions have been made”.
The Treasury said: “Cash savings are important for people looking to put cash away for a rainy day and we will protect that.
“But the chancellor has been clear that she wants to get Britain investing again.”
Biggest overhaul in years
Reeves’ plans would mark the biggest overhaul of the ISA regime since it came into force in 1999 under chancellor Gordon Brown.
The government and regulators have already taken steps to urge people to invest, with the Financial Conduct Authority confirming earlier this year that companies would be able to provide “targeted supported” to investors.
The government will also launch a campaign in 2026 set to raise awareness of the benefits of investing for individuals and the wider economy.